CREDIT AGREEMENT
BETWEEN
COMPASS BANK
AND
GLADSTONE RESOURCES, INC.
July 15, 1999
____________________________________
REVOLVING LINE OF CREDIT OF UP TO $15,000,000
_____________________________________
TABLE OF CONTENTS
ARTICLE I DEFINITION........................................... 1
SECTION 1.1 Definitions.......................................1
ARTICLE II COMMITMENT TO LEND..................................12
SECTION 2.1 Commitment.......................................12
SECTION 2.2. Method of Borrowing and Obtaining Letters of
Credit...................................................... 12
SECTION 2.3. Note............................................13
SECTION 2.4. Certain Payments and Prepayments of Principal...13
SECTION 2.5 Interest.........................................13
SECTION 2.6 Commitment, Engineering, Facility and Letter of
Credit Fees; Authorized Payments by Lender...................13
SECTION 2.7 Mandatory Termination of Revolving Commitment....14
SECTION 2.8 Determination of Borrowing Base; Automatic
Reductions in Borrowing Base; Borrowing Base Deficiency......14
ARTICLE III GENERAL PROVISIONS..................................15
SECTION 3.1 General Provisions as to Payments and Loans......15
SECTION 3.2 Computation of Interest..........................16
SECTION 3.3 Overdue Principal and Interest...................16
ARTICLE IV COLLATERAL..........................................16
SECTION 4.1 Security.........................................16
ARTICLE V CONDITIONS PRECEDENT TO LOAN.........................16
SECTION 5.1 All Loans and Letters of Credit..................16
SECTION 5.2 In the case of the initial Loan..................17
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER......18
SECTION 6.1 Existence and Power..............................18
SECTION 6.2 Corporate and Governmental Authorization;
Contravention................................................18
SECTION 6.3 Binding Effect...................................19
SECTION 6.4 Subsidiaries; Ownership..........................19
SECTION 6.5 Disclosure.......................................19
SECTION 6.6 Financial Information............................19
SECTION 6.7 Litigation.......................................19
SECTION 6.8 Plans............................................20
SECTION 6.9 Taxes and Filing of Tax Returns..................20
SECTION 6.10 Title to Properties; Liens; Environmental
Liability....................................................20
SECTION 6.11 Business; Compliance............................20
SECTION 6.12 Licenses, Permits, Etc..........................20
SECTION 6.13 Compliance with Law.............................20
SECTION 6.14 Governmental Consent............................21
SECTION 6.15 Investment Company Act..........................21
SECTION 6.16 Public Utility Holding Company Act; State
Utility......................................................21
SECTION 6.17 Refunds; Certain Contracts......................21
SECTION 6.18 No Default......................................21
SECTION 6.19 Y2K..............................................21
ARTICLE VII COVENANTS..........................................22
SECTION 7.1 Use of Proceeds and Letters of Credit............22
SECTION 7.2 Financial Statements; Reports; Compliance
Certificates; Certain Notices................................ 22
SECTION 7.3 Inspection of Properties and Books.............. 24
SECTION 7.4 Maintenance of Security; Insurance; Operating
Accounts; Transfer Orders.................................... 24
SECTION 7.5 Payment of Taxes and Claims......................25
SECTION 7.6 Payment of Debt; Additional Debt.................25
SECTION 7.7 Liens............................................25
SECTION 7.8 Loans and Advances to Others; Investments;
Subsidiaries; Restricted Payments............................ 26
SECTION 7.9 Consolidation, Merger, Maintenance, Change of
Control; Disposition of Property; Restrictive Agreements;
Hedging Agreements.......................................... 26
SECTION 7.10 Primary Business; Location of Borrower's
Office; Ownership of Assets................................. 27
i
SECTION 7.11 Operation of Properties and Equipment;
Changes to Certain Contracts; Payment of Accounts
and Contract Operators......................................27
SECTION 7.12 Transactions with Affiliates...................28
SECTION 7.13 Plans..........................................28
SECTION 7.14 Compliance with Laws and Documents.............28
SECTION 7.15 Certain Financial Covenants....................28
SECTION 7.16 Additional Documents; Quantity of Documents;
Title Data; Additional Information.......................... 29
SECTION 7.17 Environmental Indemnification..................30
SECTION 7.18 Exceptions to Covenants........................31
ARTICLE VIII DEFAULTS; REMEDIES.............................. 31
SECTION 8.1 Events of Default; Acceleration of Maturity.....31
SECTION 8.2 Suits for Enforcement...........................33
SECTION 8.3 Remedies Cumulative.............................33
SECTION 8.4 Remedies Not Waived.............................33
ARTICLE IX MISCELLANEOUS......................................33
SECTION 9.1 Amendments and Waivers..........................33
SECTION 9.2 Highest Lawful Interest Rate....................34
SECTION 9.3 INDEMNITY.......................................34
SECTION 9.4 Expenses........................................35
SECTION 9.5 Taxes...........................................36
SECTION 9.6 Notices.........................................36
SECTION 9.7 Right of Set-Offs...............................36
SECTION 9.8 Survival........................................36
SECTION 9.9 Successors and Assigns: Rights of
Other Holders...............................................37
SECTION 9.10 Applicable Law; Venue; Waiver of Jury Trial... 37
SECTION 9.11 Headings.......................................38
SECTION 9.12 Counterparts...................................38
SECTION 9.13 Invalid Provisions, Severability...............38
SECTION 9.14 Preclusion of Oral Agreements..................38
FORM OF PROMISSORY NOTE
FORM OF NOTICE OF BORROWING
FORM OF COMPLIANCE CERTIFICATE
FORM OF OFFICERS' CORPORATE CERTIFICATE
(Gladstone Resources, Inc.)
FORM OF CERTIFICATE OF OWNERSHIP INTERESTS
ii
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of July 15, 1999,
by an between GLADSTONE RESOURCES, INC., a Washington
corporation, and COMPASS BANK, an Alabama state bank.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. The following terms, as used
herein, have the following meanings:
"Acceptable Hedging Agreements" means Hedging Agreements
meeting all the following criteria:
(a) The quantity of hydrocarbons owned by the Borrower
subject to Hedging Agreements shall not be greater than 75% of
the monthly production of the Collateral forecast in the Lender's
most recent engineering evaluation delivered to the Borrower,
without the prior written approval of the Lender;
(b) The "strike prices" under any Hedging Agreements shall
not be less than the lowest prices utilized in the Lender's most
recent base case evaluation of the Collateral reported to the
Borrower, except that under certain downside conditions such
lower strike price as the Lender may approve in writing following
a written request by the Borrower;
(c) The Lender must have given its written consent to the
counter-parties under the Hedging Agreements; and
(d) The Lender shall have received first and prior
perfected security interests pursuant to security agreements in
form and substance reasonably satisfactory to the Lender in and
to the Hedging Agreements.
"Affiliate" means any Person directly or indirectly
controlling, or under common control with, the Borrower and
includes any Subsidiary of the Borrower and any "affiliate" of
the Borrower within the meaning of Reg. 240.12b-2 of the
Securities Exchange Act of 1934, as amended, with "control," as
used in this definition, meaning possession, directly or
indirectly, of the power to direct or cause the direction of
management, policies or action through ownership of voting
securities, contract, voting trust, or membership in management
or in the group appointing or electing management or otherwise
through formal or informal arrangements or business
relationships. The term "Affiliate" includes Affiliates of
Affiliates (and so on).
"Agreement" means this Credit Agreement, as the same may
hereafter be modified or amended from time to time.
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"Borrower" means Gladstone Resources, Inc., a Washington
corporation.
"Borrowing Base" means the amount most recently determined
and designated by the Lender as the Borrowing Base in accordance
with SECTION 2.8(A), as such Borrowing Base is reduced in
accordance with SECTION 2.8(b). The Borrowing Base under SECTION
2.8(a) is deemed to be $230,000 as of the Closing Date.
"Borrowing Base Deficiency" means, as of the date of a
redetermination of the Borrowing Base under SECTION 2.8(a), the
amount, if any, by which the outstanding principal balance of the
Loans exceeds the Borrowing Base as so redetermined.
"Business Day" means any day (other than Saturdays and
Sundays) on which the Lender is open for general banking business
in Dallas, Texas.
"CBIR Rate" means, on any day, the prime rate as published
in THE WALL STREET JOURNAL'S "Money Rates" table for such day.
If multiple prime rates are quoted in such table, then the
highest prime rate quoted therein shall be the CBIR Rate. In the
event that a prime rate is not published in THE WALL STREET
JOURNAL'S "Money Rates" table, the Lender will choose a
substitute CBIR Rate, for purposes of calculating the interest
rate applicable hereunder, which is based on comparable
information, until such time as a prime rate is published in THE
WALL STREET JOURNAL'S "Money Rates" table. Each change in the
CBIR Rate shall become effective without notice to the Borrower
on the effective date of each such change.
"Closing" means the consummation of the transactions
contemplated herein.
"Closing Date" means the date of this Agreement.
"Collateral" means the Property pledged to the Lender as
security for the Note.
"Collateral Value" means, with respect to any Property, the
positive dollar amount which such Property contributed to the
most recently determined Borrowing Base.
"Commission" means the Securities and Exchange Commission.
"Commitment" means the commitment of the Lender to make
Loans to the Borrower or issue Letters of Credit for the account
of the Borrower up to the Commitment Amount, subject to the
Borrowing Base and other terms of the Agreement.
"Commitment Amount" means the amount of $15,000,000.
"Commonly Controlled Entity" means any Person which is under
common control with the Borrower within the meaning of Section
4001 of ERISA.
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"Compliance Certificate" means a certificate, substantially
in the form attached hereto entitled "Form of Compliance
Certificate", executed by a Responsible Officer of the Borrower
and furnished to the Lender from time to time in accordance with
SECTION 7.2(a).
"Debt" of any Person means at any date, without duplication:
(a) all obligations of such Person for money borrowed,
including, without limitation, (i) the obligations of such Person
for money borrowed by a partnership of which such Person is a
general partner, (ii) obligations which are secured in whole or
in part by the Property of such Person, and (iii) any obligations
of such Person in respect of letters of credit and repurchase
agreements;
(b) all obligations of such Person evidenced by notes,
debentures, bonds or similar instruments;
(c) all obligations of such Person to pay the deferred
purchase price of property or services (except trade accounts
arising in the ordinary course of business if interest is not
paid or accrued thereon);
(d) all obligations of such Person as lessee under capital
leases, other than usual and customary oil and gas leases; and
(e) all Guarantees by such Person of Debt of another
Person.
"Default" means the occurrence of an Event of Default or any
event which with notice, lapse of time or both would, unless
cured or waived, become an Event of Default.
"Default Rate" means a per annum interest rate equal to the
CBIR Rate plus five percent (5.0%), but in no event exceeding the
Highest Lawful Rate.
"Dollars" and "$" shall mean dollars in lawful currency of
the United States of America.
"Environmental Laws" means: any law, statute, regulation,
order or rule promulgated by any Governmental Authority, whether
local, state or federal relating to air pollution, water
pollution, noise control and/or transporting, storing, handling,
discharge, disposal or recovery of on-site or off-site hazardous
substances or materials, as each of the foregoing may be amended
from time to time.
"Environmental Liability" means any claim, demand,
obligation, cause of action, accusation, allegation, order,
violation, damage, injury, judgment, penalty or fine, cost of
enforcement, cost of remedial action or any other cost or expense
whatsoever, including reasonable attorneys, fees and
disbursements, resulting from the violation or alleged violation
of any Environmental Law or the imposition of any Environmental
Lien.
"Environmental Lien" means a Lien in favor of a Tribunal or
other Person (i) for any liability under an Environmental Law or
(ii) for damages arising from or costs incurred by such
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Tribunal or other Person in response to a release or threatened
release of hazardous or toxic waste, substance or constituent
into the environment.
"Equity Infusions" shall mean the net proceeds received by
the Borrower from any stock or other equity interests issued by
the Borrower plus any other capital contributions to the
Borrower.
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, together with all presently effective and
future regulations issued pursuant thereto.
"Event of Default" has the meaning stated in SECTION 8.1
hereof.
"Final Maturity" means August 1, 2001.
"Floating Rate" means a per annum interest rate equal to the
sum of one (1) percent (1.0%) plus the CBIR Rate from time to
time in effect, but in no event exceeding the Highest Lawful
Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants and in effect
in the United States from time to time.
"Governmental Authority" means any nation, country,
commonwealth, territory, government, state, county, parish,
municipality, or other political subdivision and any entity
exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.
"Guarantee" by any Person means any obligation, contingent
or otherwise, of such Person directly or indirectly guaranteeing
any Debt of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent
or otherwise, of such Person (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or
other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, to make
reimbursement in connection with any letter-of-credit or to
maintain financial statement conditions, by "comfort letter" or
other similar undertaking of support or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part). The term "Guarantee" includes the pledging or
other encumbrance of assets by a Person to secure the obligations
of another Person and restrictions or limitations on a Person or
its assets agreed to in connection with the obligations of
another Person, but does not include endorsements for collection
or deposit in the ordinary course of business; and "Guaranteed"
by a Person shall mean the act or condition of providing a
Guarantee by such Person or permitting a Guarantee of such Person
to exist.
"Hedging Agreement" means (i) any interest rate or currency
swap, rate cap, rate floor, rate collar, forward agreement, or
other exchange or rate protection agreement or any option with
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respect to any such transaction and (ii) any swap agreement, cap,
floor, collar, exchange transaction, forward agreement, or other
exchange or protection agreement relating to hydrocarbons or any
option with respect to any such transaction.
"Highest Lawful Rate" shall mean the maximum non-usurious
interest rate, if any (or, if the context so requires, an amount
calculated at such rate), that at any time or from time to time
may be contracted for, taken, reserved, charged, or received
under applicable laws of the State of Texas or the United States
of America, whichever authorizes the greater rate, as such laws
are presently in effect or, to the extent allowed by applicable
law, as such laws may hereafter be in effect and which allow a
higher maximum non-usurious interest rate than such laws now
allow. To the extent the laws of the State of Texas are
applicable for the purpose of determining the "Highest Lawful
Rate", such term shall mean the "weekly ceiling" from time to
time in effect as referred to and defined in Chapter 303 of the
Finance Code, as amended. The determination of the Highest
Lawful Rate shall, to the extent required by applicable law, take
into account as interest paid or contracted for any and all
relevant payments or charges under the Loan Documents.
"Insolvency Proceeding" of any Person means application
(whether voluntary or instituted by another Person) for or the
consent to the appointment of a receiver, trustee, conservator,
custodian, or liquidator of such Person or of all or a
substantial part of the Property of such Person, or the filing of
a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code,
seeking liquidation, reorganization, or rearrangement or taking
advantage of any bankruptcy, insolvency, debtor's relief, or
other similar law of the United States, the State of Texas, or
any other jurisdiction.
"Intangible Assets" of any Person means those assets of such
Person which are (i) deferred assets, other than prepaid
insurance and prepaid taxes, (ii) Intellectual Property, (iii)
goodwill, experimental expenses and other assets which would be
classified as intangible assets on a balance sheet of such
Person, prepared in accordance with GAAP, (iv) unamortized debt
discount and expenses, (v) assets located, and notes and
receivables due from obligors domiciled, outside of the United
States of America and (vi) costs in excess of fair value of the
net assets acquired.
"Intellectual Property" means all patents, patent
applications, trademarks, trade names, franchise agreements,
license agreements, corporate names, company names, business
names, fictitious business names, trade styles, service marks,
logos, formulae, recipes, trade secrets, other source and
business identifiers, copyrights and the like.
"Investment" in any Person shall mean any stock, bond, note,
or other evidence of Debt, or any other security (other than
current trade and customer accounts) of, investment or
partnership interest in or loan or advance to, such Person.
"Lender" means Compass Bank, an Alabama state bank, and its
successors and assigns.
"L/C Exposure" shall mean, at any time, the aggregate
maximum amount available to be drawn under outstanding Letters of
Credit at such time.
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"Letter of Credit" means any letter of credit issued
pursuant to this Agreement.
"Letter of Credit Application" shall mean the standard
letter of credit application employed by the Lender from time to
time in connection with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the
Lender by the Borrower in connection with the issuance of a
Letter of Credit.
"Lien" means, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest, negative pledge or
other encumbrance in or on, or any interest or title of any
vendor, lessor, lender or other secured party to or of the Person
under any conditional sale or other title retention agreement or
capital lease with respect to, any property or asset of the
Person, or the signing or filing of a financing statement which
names the Person as debtor, or the signing of any security
agreement authorizing any other Person as the secured party
thereunder to file any financing statement.
" Loan" means a loan made, deemed made in connection with
the payment by the Lender on any Letter of Credit or to be made
by the Lender to the Borrower pursuant to this Agreement or the
aggregate outstanding amount of all such loans, as the context
may require.
"Loan Documents" or "Loan Papers" shall mean this Agreement,
the Note, the Letter of Credit Applications, the Security
Instruments, and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection
with this Agreement, the Note, the Letter of Credit Applications,
or the Security Instruments, and all renewals and extensions of,
amendments and supplements to, and restatements of, any or all of
the foregoing from time to time in effect.
"Loan Papers". See Loan Documents.
"Material Adverse Effect" shall mean, with respect to any
Person, (i) any material adverse effect on the business,
operations, properties, condition (financial or otherwise), or
prospects of such Person or (ii) any material adverse effect upon
the Collateral or the priority or enforceability of the Liens
securing the Note. Unless otherwise specified, the "Person"
referred to in this definition shall be deemed to be the
Borrower.
"Material Agreement" means, with respect to any Person, any
material written or oral agreement, contract, commitment, or
understanding to which such Person is a party, by which such
Person is directly or indirectly bound, or to which any Property
of such Person may be subject, which is not cancellable by such
Person upon notice of 90 days or less without (i) liability for
further payment other than nominal penalty or (ii) forfeiture of
valuable Property.
"Material Debts" means Debts of the Borrower aggregating
$25,000 or more.
"Margin Regulations" means Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System, as in effect
from time to time.
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"Mortgages" mean deeds of trust, mortgages, assignments of
production, security agreements, collateral mortgages and acts of
pledge in form and substance acceptable to the Lender to be
executed by the appropriate Person pursuant to which the Lender
is granted a first and prior Lien on the Collateral, subject only
to Permitted Liens.
"Note" means the promissory note of the Borrower (and any
renewal or extension thereof) evidencing the obligation of the
Borrower to repay the Loans, substantially in the form attached
hereto entitled "Form of Promissory Note", with appropriate
insertions.
"Notice of Borrowing" has the meaning given such term in
SECTION 2.2 and shall be substantially in the form attached
hereto entitled "Form of Notice of Borrowing".
"Obligations" shall mean, without duplication, (i) all Debt
evidenced by the Note, (ii) the Reimbursement Obligations, (iii)
the undrawn, unexpired amount of all outstanding Letters of
Credit, (iv) the obligation of the Borrower for the payment of
the fees payable hereunder or under the other Loan Documents, and
(v) all other obligations and liabilities of the Borrower to the
Lender, now existing or hereafter incurred, under, arising out of
or in connection with any Loan Document, and to the extent that
any of the foregoing includes or refers to the payment of amounts
deemed or constituting interest, only so much thereof as shall
have accrued, been earned and which remains unpaid at each
relevant time of determination.
"Officer's Certificate" means as to the Borrower, a
certificate signed by a Responsible Officer.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Indebtedness" means (i) the Obligations, (ii)
unsecured accounts payable incurred in the ordinary course of
business, which are not unpaid in excess of 120 days beyond date
due or are being contested in good faith and as to which such
reserve as is required by GAAP has been made and on which
interest charges are not paid or accrued, (iii) accrued Taxes not
past due, (iv) unsecured accounts payable owed to insurance
companies for insurance contracts maintained by Borrower in its
ordinary course of business, (v) Debt arising under Acceptable
Hedging Agreements, (vi) endorsements of negotiable instruments
in the ordinary course of business, (vii) Debt arising in the
ordinary course of business and relating to performance bonds or
surety obligations required by any Governmental Authority in
connection with the ownership, operation, plugging or abandonment
of the Collateral, and (viii) any and all renewals and extensions
of any of the foregoing.
"Permitted Investments" means investments in (i)
indebtedness, evidenced by notes maturing not more than 180 days
after the date of issue, issued or guaranteed by the government
of the United States of America, (ii) certificates of deposit
maturing not more than 180 days after the date of issue, issued
by commercial banking institution each of which is a member of
the Federal Reserve System and which has combined capital and
surplus and undivided profits of not less than $50,000,000, (iii)
commercial paper, maturing not more than 90 days after the date
of
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issue, issued by (a) the Lender (or any parent corporation of the
Lender) or (b) a corporation (other than an Affiliate of the
Borrower) with a rating of "P1" (or its then equivalent)
according to Moody's Investors Service, Inc., "A-1" (or its then
equivalent) according to Standard & Poor's Corporation or "F-1"
(or its then equivalent) according to Fitch's Investors Services,
Inc. or (iv) such other instruments, evidences of indebtedness or
investment securities as the Lender may approve.
"Permitted Liens" means, with respect to any Property,
(a) Liens in favor of the Lender;
(b) the following, if the validity and amount thereof are
being contested in good faith and by appropriate legal
proceedings and so long as (i) levy and execution thereon have
been stayed and continue to be stayed, (ii) they do not in the
aggregate materially detract from or threaten the value of the
asset, or materially impair the use thereof in the operation of
the Borrower's business, and (iii) a reserve therefor, if
appropriate, has been established: claims and Liens for Taxes due
and payable; claims and Liens upon and defects of title to real
and personal property, including any attachment of personal or
real property or other legal process prior to adjudication of a
dispute on the merits; claims and Liens of mechanics,
materialmen, warehousemen, or carriers, or similar Liens; and
adverse judgments on appeal;
(c) Liens for Taxes not past due;
(d) mechanics' and materialmen's Liens for services or
materials for which payment is not past due;
(e) operators' Liens and similar liens incurred pursuant to
operating agreements or other agreements incident to the
exploration, development, operation and maintenance of oil and
gas properties entered into by the Borrower in the ordinary
course of business which secure obligations not past due;
(f) Liens in favor of the lessor on the Property being
leased under any capital lease permitted hereunder;
(g) Liens of governmental bodies securing the obligation to
plug and abandon wells and perform surface restoration;
(h) pledges on deposits made to secure payment of workers'
compensation, unemployment insurance, or other forms of
governmental insurance or benefits, or to participate in any
funds in connection with workers' compensation, unemployment
insurance, pensions or other social security programs;
(i) good faith pledges or deposits of the amounts due
under, and made to secure, the Borrower's performance of bids,
tenders, contracts or leases; and
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(j) zoning, easements rights-of-way and similar
restrictions on the use of real Property that do not materially
impair the use of the real Property and that are not violated by
existing or proposed improvements or land use;
provided that none of the foregoing shall be construed as
permitting the Borrower to create or permit to exist contractual
Liens on any Collateral other than pursuant to clause (a) above
and operating agreements in effect at the time a Property becomes
Collateral.
"Permitted Loans and Investments" means (i) loans by the
Borrower to or the acquisition of Investments by the Borrower in
any Person not exceeding in the aggregate outstanding at any time
the amount of $10,000 and not otherwise permitted under this
Agreement and (ii) Permitted Investments.
"Person" means a corporation, an association, a joint
venture, an organization, a business, an individual or a
government or political subdivision thereof or any governmental
agency.
"Plan" means, at any time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or any
Commonly Controlled Entity is (or, if such plan were terminated
at such time, would under Section 4069 of ERISA be deemed to be)
an "employer" as defined in Section 3(5) of ERISA.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"Reimbursement Obligation" means the obligation of the
Borrower to provide to the Lender or reimburse the Lender for any
amounts payable, paid, or incurred by the Lender with respect to
Letters of Credit.
"Requirement of Law" means, as to any Person, the
certificate or articles of incorporation and by-laws or other
organizational or governing documents of such Person, and any
applicable law, treaty, ordinance, order, judgment, rule, decree,
regulation, or determination of an arbitrator, court, or other
Governmental Authority, including, without limitation, rules,
regulations, orders, and requirements for permits, licenses,
registrations, approvals, or authorizations, in each case as such
now exist or may be hereafter amended and are applicable to or
binding upon such Person or any of its Property or to which such
Person or any of its Property is subject. Unless otherwise
specified, the "Person" referred to in this definition shall be
deemed to be the Borrower.
"Responsible Officer" means Charles B. Humphrey, Chairman of
the Board of the Borrower if under the Borrower's organizational
documents and the laws of the State of Washington, such Chairman
has the power to execute documents on behalf of the Borrower, and
Johnathan M. Hill, President of the Borrower.
"Regulation U" means Regulation U of the Board of Governors
of the Federal Reserve System, as in effect from time to time.
"Restricted Payment" means:
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(a) the declaration or payment of any dividend on, or the
incurrence of any liability to make any other payment or
distribution in respect of, any shares of or other ownership
interests in the Borrower;
(b) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of or other
ownership interests in the Borrower, or of any warrant, option or
other right to acquire such shares or such other ownership
interests, or any other payment or distribution made in respect
thereof, either directly or indirectly;
(c) the repayment by the Borrower of any Debt owed to an
Affiliate; or
(d) any loan or extension of credit by the Borrower to any
Affiliate.
The amount of any Restricted Payment in Property shall be deemed
to be the greater of its fair market value or its net book value
("fair market value" will be determined by an appraisal in form,
and prepared by an appraiser, acceptable to the Lender).
"Revolving Commitment" has the meaning given such term in
SECTION 2.1.
"Revolving Credit Termination Date" has the meaning given
such term in the definition of "Revolving Credit Period."
"Revolving Credit Period" means the period commencing on the
Closing Date and ending at Final Maturity (the "Revolving Credit
Termination Date.")
"Security Document". See Security Instruments.
"Security Instruments" or "Security Documents" means the
security instruments executed and delivered in satisfaction of
the condition set forth in SECTION 5.2(c), and all other
documents and instruments at any time executed as security for
all or any portion of the Obligations, as such instruments may be
amended, restated, or supplemented from time to time.
"Subsidiary" means for any Person, any corporation or other
entity of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at
the time directly or indirectly owned, collectively, by such
Person and any Subsidiaries of such Person. The term Subsidiary
shall include Subsidiaries of Subsidiaries (and so on). Unless
otherwise specified, the "Person" referred to in this definition
shall be deemed to be the Borrower.
"Taxes" means all taxes, assessments, filing or other fees,
levies, imposts, duties, deductions, withholdings, stamp taxes,
interest equalization taxes, capital transaction taxes, foreign
exchange taxes or charges, or other charges of any nature
whatsoever from time to time or at any time imposed by any law or
Tribunal.
"Transferee" means any Person to which the Lender has sold,
assigned, transferred, or granted a participation in any of the
Obligations, as authorized hereunder, and any Person
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acquiring, by purchase, assignment, transfer, or participation,
from any such purchaser, assignee, transferee, or participant,
any part of such Obligations.
"Tribunal" means any court, tribunal, governmental body,
agency or instrumentality.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the State of Texas.
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS; CHANGES IN
ACCOUNTING.
(a) Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP,
applied on a basis consistent (except for changes concurred in by
the independent public accountants and with respect to which the
Borrower shall have promptly notified the Lender on becoming
aware thereof) with the most recent financial statements of the
Borrower delivered to the Lender.
(b) The Borrower will not change its method of accounting,
other than immaterial changes in methods, changes permitted by
GAAP in which the Borrower's independent public accountants
concur and changes required by a change in GAAP, without the
prior written consent of the Lender.
SECTION 1.3 REFERENCES. References in this Agreement to
Exhibits, Schedules, Annexes, Appendixes, Attachments, Articles,
Sections or clauses shall be to Exhibits, Schedules, Annexes,
Appendixes, Attachments, Articles, Sections or clauses of this
Agreement, unless expressly stated to the contrary. References
in this Agreement to "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder" and words of
similar import shall be to this Agreement in its entirety and not
only to the particular Exhibit, Schedule, Annex, Appendix,
Attachment, Article, or Section in which such reference appears.
This Agreement, for convenience only, has been divided into
Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined
from this instrument as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard
to headings prefixed to such Articles or Sections. Whenever the
context requires, reference herein made to the single number
shall be understood to include the plural; and likewise, the
plural shall be understood to include the singular. Definitions
of terms defined in the singular or plural shall be equally
applicable to the plural or singular, as the case may be, unless
otherwise indicated. Words denoting sex shall be construed to
include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative. The
Exhibits, Schedules, Annexes, Appendixes and Attachments attached
to this Agreement and items referenced as being attached to this
Agreement are incorporated herein and shall be considered a part
of this Agreement for all purposes.
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ARTICLE II
COMMITMENT TO LEND
SECTION 2.1 COMMITMENT.
(a) During the Revolving Credit Period, the Lender agrees,
subject to the other terms and conditions of this Agreement:
(i) To lend to the Borrower subject to CLAUSE (ii)
below from time to time amounts not to exceed in the aggregate at
any one time outstanding an amount equal to the lesser of (x)
$15,000,000 or (y) the Borrowing Base (the "Revolving
Commitment"). Subject to the foregoing limitations, the Borrower
may borrow under this Section, repay Loans and reborrow under
this Section at any time during the Revolving Credit Period.
(ii) To issue letters of credit for the account of the
Borrower from time to time in amounts not to exceed the aggregate
at any one time outstanding the lesser of the amount of $200,000
or the unused Revolving Commitment, it being understood that
outstanding funding obligations under Letters of Credit shall
reduce the unused Revolving Commitment hereunder.
(b) The Lender shall not be obligated to lend to the
Borrower, and the Borrower shall not be entitled to borrow
hereunder, any amount which would cause the sum of the
outstanding principal amount of all Loans made by the Lender and
the undrawn amount of all outstanding Letters of Credit to exceed
the Revolving Commitment of the Lender then in effect.
(c) The Lender shall not be obligated to issue a letter of
credit pursuant to Section 2.1(a) or to renew a Letter of Credit,
and the Borrower shall not be entitled to have a letter of credit
issued pursuant to such Section or to have a Letter of Credit
renewed, if the issuance of the requested letter of credit or the
renewal of an existing Letter of Credit would cause, after taking
into account the mandatory reductions in the Borrowing Base
required during the proposed term of such requested letter of
credit or existing Letter of Credit, the undrawn amount of all
Letters of Credit to ever exceed the Revolving Commitment.
SECTION 2.2. METHOD OF BORROWING AND OBTAINING LETTERS OF
CREDIT. (a) The Borrower shall give the Lender notice (a "Notice
of Borrowing") prior to 12:00 p.m. (Dallas time) of the day of
the requested Loan under SECTION 2.1, in the form of EXHIBIT
2.2(a).
(b) Unless the Lender determines that any applicable
condition specified in ARTICLE V or elsewhere herein has not been
satisfied, the Lender will make the funds available to the
Borrower at the Lender's address referred to in SECTION 9.6.
(c) The Borrower shall give the Lender a request for letter
of credit prior to 12:00 p.m. (Dallas time) at least three (3)
Business Days before each requested letter of credit under
SECTION 2.1, by completing and delivering a Letter of Credit
Application. The expiry date of such requested letter of credit
cannot be later than the earlier of (A) one (1) year from the
date of issuance or (B) the last date before which the Borrowing
Base is scheduled to reduce to an
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amount less than the aggregate undrawn amount of the requested
letter of credit and the outstanding Letters of Credit which, by
their terms, might be outstanding on such reduction date. The
Letter of Credit Application must be completed in a manner and
shall use such wording as is acceptable to the Lender.
(d) Upon receipt of the Letter of Credit Application, the
Lender shall issue such letter of credit if the conditions of
ARTICLE V or elsewhere herein have been satisfied.
(e) Subject to the terms hereof, in the event that any
beneficiary of a Letter of Credit shall have taken the steps
necessary to obligate the Lender to make a payment under such
Letter of Credit, the Borrower shall be deemed to have delivered
to the Lender an irrevocable Notice of Borrowing under SECTION
2.2 for a Loan in the amount of such payment amount, regardless
of any limitations set forth herein. The Lender shall pay over
the proceeds of such Loan to itself as reimbursement for amounts
paid under such Letter of Credit.
SECTION 2.3. NOTE. The Loans shall be evidenced by the Note
issued by the Borrower, payable to the order of the Lender in the
Commitment Amount.
SECTION 2.4. CERTAIN PAYMENTS AND PREPAYMENTS OF PRINCIPAL.
(a) If at any time the aggregate principal of the Loans
outstanding and the undrawn amount of the outstanding Letters of
Credit exceed the Revolving Commitment then in effect, the
Borrower shall within five (5) Business Days after it becomes
aware or should have become aware of such occurrence, repay the
principal of the Loans in an amount equal to such excess, except
that if the circumstances described in this Section are the
direct result of a new determination of the Borrowing Base, then
the provisions of SECTION 2.8 shall apply.
(b) In the event that a prepayment is required under this
Section or SECTION 2.8 and the outstanding Loans are less than
the amount required to be prepaid, the Borrower shall repay the
entire Loan balance and, in accordance with the provisions of the
relevant Letter of Credit Application executed by the Borrower or
otherwise to the satisfaction of the Lender, deposit with the
Lender as additional collateral securing the Obligations, an
amount of cash, in immediately available funds, equal to the L/C
Exposure minus the Borrowing Base.
SECTION 2.5 INTEREST. (a) The unpaid principal balance of
the Loans shall bear interest, payable as it accrues on the 1st
day of each month, commencing September 1, 1999, and at maturity
(stated or by acceleration), at a rate per annum equal to the
lesser of the (i) Highest Lawful Rate or (ii) the Floating Rate.
(b) Each change in the rate of interest charged hereunder
shall become effective automatically and without notice to the
Borrower upon the effective date of each change in the Floating
Rate or the Highest Lawful Rate, as the case may be.
SECTION 2.6 COMMITMENT, ENGINEERING, FACILITY AND LETTER OF
CREDIT FEES; AUTHORIZED PAYMENTS BY LENDER. (a) The Borrower
shall pay to the Lender a commitment fee of one-half of one
percent (1/2 of 1%) per annum, calculated daily on the actual
number of days the Revolving Commitment is outstanding on the
amount of the unused portion of the Revolving Commitment
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in effect from time to time, such commitment fee to be payable
quarterly as it accrues on each October 1, January 1, April 1,
and July 1, and upon termination of the Revolving Commitment.
(b) The Borrower shall pay to the Lender an engineering fee
in the amount of (i) the greater of (A) $2,000 or (B) an amount
calculated as $1,300 per one million dollars of Borrowing Base as
redetermined from time to time, if engineering reports are
prepared internally by the Lender or (ii) the actual fees and
expenses of any third-party engineers retained to prepare such
engineering reports; in either case payable at the time of each
semi-annual or Borrower requested determination of the Borrowing
Base referred to in SECTION 2.8.
(c) To compensate the Lender for the costs of the extension
of credit hereunder, the Borrower shall pay to the Lender (i) on
the Closing Date, a facility fee in the amount of $2,300 and
(ii) thereafter upon each determination of an increase in the
Borrowing Base pursuant to SECTION 2.8, a facility fee in the
amount of one percent (1.00%) of the amount by which the
Borrowing Base is increased over that in effect on the date of
such determination.
(d) The Borrower shall pay to the Lender at the time of
issuance of each Letter of Credit, (i) a letter of credit fee
equal to the greater of (1) one and one-half percent (1.5%) per
annum of the face amount of such Letter of Credit for the maximum
number of days which such Letter of Credit, by its terms, could
remain outstanding with the Borrower being entitled, subject to
CLAUSE (2) following, of a pro rata return of such fee if such
Letter of Credit is cancelled prior to its stated expiry date or
(2) $500, and (ii) the normal and standard charges of the Lender
for the issuance, delivery and confirmation of such Letter of
Credit.
(e) The Lender is irrevocably authorized to make Loans for
the payment of the fees and expenses of the Lender required to be
paid by the Borrower hereunder. The Lender shall pay over such
Loan proceeds to itself or directly to such other Person entitled
to payment hereunder.
SECTION 2.7. MANDATORY TERMINATION OF REVOLVING COMMITMENT.
The Revolving Commitment shall terminate no later than the
Revolving Credit Termination Date, and any Loans then outstanding
(together with accrued interest thereon) shall be due and payable
in full on such date.
SECTION 2.8. DETERMINATION OF BORROWING BASE; AUTOMATIC
REDUCTIONS IN BORROWING BASE; BORROWING BASE DEFICIENCY. (a) On
the basis of the information furnished to the Lender hereunder
and such other reports, appraisals and information as the Lender
may deem appropriate, the Lender shall have the right to
determine a new Borrowing Base as of each April 1 and October 1
during the Revolving Credit Period (the "semi-annual
determinations"), or at such other or additional times during the
Revolving Credit Period as the Lender in its reasonable
discretion and at its sole cost may elect ("discretionary
determinations"), and the Lender shall determine a new Borrowing
Base at such additional times, but no more often than one (1)
time in any 12-month period without the Lender's consent, as the
Borrower may request ("Borrower requested determinations"). Such
determinations, if made, shall be in accordance with the Lender's
customary practices and standards for loans of a similar nature
as in effect at the time such determinations are made and shall
be conclusive, and any increases in the Borrowing Base shall be
subject to the Lender's complete credit approval process.
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(b) The Borrowing Base shall be automatically reduced as of
the 1st day of each month commencing February 1, 2000, and
continuing throughout the Revolving Credit Period. The initial
monthly reduction shall be in the amount of $5,000 per month. At
the time of each new Borrowing Base determination under SECTION
2.8(a), the Lender in its sole discretion may increase or
decrease the amount of such monthly reduction.
(c) Upon the occurrence of a Borrowing Base Deficiency, the
Borrower shall, within thirty (30) days following notice by the
Lender of the existence of such Borrowing Base Deficiency, do any
one or more of the following in an aggregate amount at least
equal to such Borrowing Base Deficiency: (i) prepay the principal
of the outstanding Loans or (ii) cause to be created first and
prior perfected Liens (subject only to Permitted Liens) in favor
of the Lender, by instruments satisfactory to the Lender, on
producing oil and gas properties (or cash if the circumstances
described in SECTION 2.4(b) are applicable) which in the opinion
of the Lender would increase the Borrowing Base by an amount
sufficient, in combination with CLAUSE (i) preceding, to
eliminate such Borrowing Base Deficiency.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.1 GENERAL PROVISIONS AS TO PAYMENTS AND LOANS.
(a) All payments of principal and interest on the Loans and
of fees hereunder shall be made by 12:00 noon (Dallas, Texas
time) on the date such payments are due in federal or other funds
immediately available at the principal office of the Lender
referred to in SECTION 9.6, and, if not made by such time or in
immediately available funds, then such payment shall be deemed
made when such funds are available to the Lender for its full and
unrestricted use. Whenever any payment of principal of or
interest on the Loans or of fees hereunder shall be due on a day
which is not a Business Day, the date for payment thereof shall
be extended to the next succeeding Business Day. If the date for
any payment is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
(b) All payments made by the Borrower on the Loans shall be
made free and clear of, and without reduction by reason of, any
Taxes other than any income taxes of the Lender with respect
thereto.
(c) All requests for Loans shall be made on a Business Day.
(d) All Loans shall be made available to the Borrower on a
Business Day at the Lender's address referred to in SECTION 9.6.
(e) All payments and fundings shall be denominated in
United States of America dollars.
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SECTION 3.2. COMPUTATION OF INTEREST. Each determination of
interest and fees hereunder shall be computed on the basis of a
year of 365 or 366 days, as applicable, and paid for the actual
number of days elapsed (including the first day but excluding the
last day), subject to the limitations of the Highest Lawful Rate.
SECTION 3.3. OVERDUE PRINCIPAL AND INTEREST. Unless waived
by the Lender, any overdue principal and, to the extent permitted
by law, overdue interest on the Loans shall bear interest at the
Default Rate.
ARTICLE IV
COLLATERAL
SECTION 4.1 SECURITY.
(a) To secure full and complete payment and performance of
the obligations of the Borrower to the Lender, the Borrower will
cause the appropriate Person to execute and deliver to the Lender
the following documents and instruments:
(i) the Mortgages granting the Lender a first and
prior Lien, subject only to Permitted Liens, on the
Collateral, together with financing statements relating
thereto.
(b) All documents delivered or to be delivered hereunder
shall be in form and substance reasonably satisfactory to the
Lender and its counsel and shall be supported by such legal
opinions as the Lender or its counsel may reasonably request.
(c) All Liens to be created by delivery of the documents
referred to in this Section shall be first and prior perfected
Liens in favor of the Lender, subject only to Permitted Liens.
ARTICLE V
CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT
The obligation of the Lender to make Loans or issue Letters
of Credit hereunder shall be subject to the satisfaction of each
of the following conditions:
SECTION 5.1. ALL LOANS AND LETTERS OF CREDIT. In the case
of each Loan or Letter of Credit issued hereunder (except the
initial Loan issued hereunder):
(a) timely receipt by the Lender of a Notice of Borrowing
or Letter of Credit Application;
(b) the fact that, immediately before such requested Loan
or Letter of Credit, no Default shall have occurred and be
continuing and that the making of any such Loan will not cause a
Default; and
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(c) the fact that the representations and warranties of the
Borrower contained in this Agreement (except the representations
set forth in SECTIONS 6.7 and 6.10(a)) shall be true on and as of
the date of such Loan.
Each request for a Loan hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such
request, as to the facts specified in CLAUSES (b) and (c)
immediately preceding.
SECTION 5.2 In the case of the initial Loan:
(a) Receipt by the Lender of the following:
(i) copies of the Articles of Incorporation, and all
amendments thereto, respectively, of the Borrower, accompanied by
certificates that such copies are correct and complete, one
issued by the Secretary of State of its state of incorporation,
dated a current date, and one executed by a Responsible Officer
and the Secretary or an Assistant Secretary of the Borrower,
dated the Closing Date;
(ii) copies of the Bylaws, and all amendments thereto,
respectively, of the Borrower, accompanied by certificates that
such copies are correct and complete of a Responsible Officer and
the Secretary or an Assistant Secretary of the Borrower, dated
the Closing Date;
(iii) certificates of the appropriate Tribunals of
the States of Washington, Texas and Louisiana, each dated a
current date, to the effect that the Borrower is each in good
standing with respect to the payment of franchise and/or other
Taxes and, if required by law, are duly qualified to transact
business in such jurisdictions, accompanied by the certificate of
a Responsible Officer and the Secretary or an Assistant Secretary
of the Borrower, that such Tribunal certificates are true and
correct as of the Closing Date;
(iv) certificates of incumbencies and signatures of all
officers of the Borrower who will be authorized to execute or
attest any of the Loan Papers, executed by a Responsible Officer
and its Secretary or an Assistant Secretary dated the Closing
Date;
(v) copies of resolutions approving the Loan Papers
and authorizing the transactions contemplated therein, duly
adopted by the Board of Directors of the Borrower, accompanied by
certificates of the Secretary or an Assistant Secretary of the
Borrower that such copies are true and correct copies of
resolutions duly adopted at the meeting of, or by the unanimous
written consent of, the Board of Directors of the Borrower and
that such resolutions constitute all the resolutions adopted with
respect to such transactions, have not been amended, modified or
revoked in any respect, and are in full force and effect as of
the Closing Date;
(b) receipt by the Lender of the duly executed Note, dated
the Closing Date;
(c) receipt by the Lender of the documents described in
SECTION 4.1(a), each duly executed and delivered by the
appropriate Person;
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(d) receipt by the Lender of a Certificate of Ownership
Interests substantially in the form attached hereto certifying as
to the Borrower's ownership interest in the Collateral and such
other documentation and information required by the Lender to
satisfy the Lender of the status of the title of the Collateral;
(e) receipt by the Lender of a certificate from a
Responsible Officer and the Secretary or an Assistant Secretary
of the Borrower certifying as to the truth and correctness of
each representation and warranty contained in ARTICLE VI hereof
as of the Closing Date;
(f) receipt by the Lender of the opinions of counsel to the
Borrower in form and substance satisfactory to the Lender and its
counsel; and
(g) receipt by the Lender of such additional information
and documentation as the Lender may reasonably require relating
to the Loan Papers (and all renewals, extensions, amendments,
restatements and modifications of the same) and the transactions
contemplated hereby and thereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as
follows:
SECTION 6.1 EXISTENCE AND POWER. (a) The Borrower:
(i) is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington;
(ii) has all corporate powers and all material
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted;
(iii) is duly qualified to transact business as a
foreign corporation in each jurisdiction where the nature of its
business requires the same, except where the failure to so
qualify could not reasonably be expected to have a Material
Adverse Effect.
SECTION 6.2 CORPORATE AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION. The execution, delivery and performance by each
Person (other than the Lender) purporting to execute the same of
this Agreement or the other Loan Papers are within such Person's
power, have been duly authorized by all necessary action, require
no action by or in respect of, or filing with, any governmental
body, agency or official (except that the perfection of Liens
created by certain of the Security Documents may require the
filing of financing statements, mortgages or similar instruments
in the appropriate recordation offices), and do not contravene,
or constitute a default under, any provision of applicable law or
regulation (including, without limitation, the Margin
Regulations) or any agreement creating or governing such Person
or any agreement, judgment, injunction, order, decree or other
instrument binding upon such Person or result in the
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creation or imposition of any Lien on any Property of the
Borrower, except Liens securing the Obligations.
SECTION 6.3 BINDING EFFECT. (a) This Agreement constitutes
a valid and binding agreement of the Borrower; the Note, when
executed and delivered in accordance with this Agreement, will
constitute the valid and binding obligation of the Borrower; the
Security Documents, when executed and delivered in accordance
with this Agreement, will constitute valid and binding
obligations of each Person purporting to execute the same;
(b) Each Loan Paper is enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors,
rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability.
SECTION 6.4 SUBSIDIARIES; OWNERSHIP. (a) The Borrower has
no Subsidiaries.
SECTION 6.5 DISCLOSURE. No document, certificate or
statement delivered to the Lender by or on behalf of the Borrower
in connection with the transactions contemplated hereby contains
any untrue statement of a material fact. All information
heretofore furnished by the Borrower to the Lender for purposes
of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter
furnished by the Borrower to the Lender will be, true and
accurate in every material respect or based on reasonable
estimates on the date as of which such information is stated or
certified. The Borrower has disclosed to the Lender in writing
any and all facts (except facts of general industry knowledge)
which may have a Material Adverse Effect (to the extent the
Borrower can now reasonably foresee) on the business, operations,
prospects or condition, financial or otherwise, of the Borrower
or may affect the ability of the Borrower to perform its
obligations under this Agreement.
SECTION 6.6 FINANCIAL INFORMATION.
(a) The financial statements of the Borrower included in
the Borrower' s Form 10-Q for the quarter ended March 31, 1999,
fairly present, in conformity with GAAP, the financial position
of the Borrower as of such date.
(b) Except as disclosed in writing by the Borrower to the
Lender prior to the execution and delivery of this Agreement,
since the date referenced in SECTION 6.6(a) above, there has been
no material adverse change in the business, financial position,
results of operations or prospects of the Borrower.
SECTION 6.7 LITIGATION. Except as disclosed to the Lender
by the Borrower in writing, there is no action, suit or
proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting the Borrower before any Tribunal
or arbitrator in which there is a reasonable possibility of an
adverse decision which could reasonably be expected to have a
Material Adverse Effect or which could in any manner draw into
question the validity of this Agreement or any other Loan Papers.
This Section excludes actions, suits and proceedings in which the
Borrower is solely a plaintiff.
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SECTION 6.8 PLANS. The Borrower has no Plans.
SECTION 6.9 TAXES AND FILING OF TAX RETURNS. The Borrower
has filed or properly extended all returns required to have been
filed or extended with respect to Taxes and has paid all Taxes
shown to be due and payable on such returns, including interest
and penalties, and all other Taxes which are payable by it, to
the extent the same have become due and payable (unless, with
respect to such other Taxes, the criteria set forth in SECTION
7.5 are being met). The Borrower does not know of any proposed
assessment of Taxes of a material amount against it and all
liabilities for Taxes of the Borrower are adequately provided
for.
SECTION 6.10 TITLE TO PROPERTIES; LIENS; ENVIRONMENTAL
LIABILITY. (a) The Borrower has good and indefeasible title to
all Collateral purported to be owned by it (except for Permitted
Liens, minor defects in title and minor encumbrances not in any
case materially detracting from the value of the assets affected
thereby). All Collateral of the Borrower is free and clear of
all Liens other than Permitted Liens. Upon the recordation of
the Security Documents in the appropriate recordation offices,
the Liens covering the Collateral will be valid, enforceable,
first and prior, perfected Liens in favor of the Lender, except
for Permitted Liens.
(b) The Borrower has not (i) received notice or otherwise
learned of any Environmental Liability which could individually
or in the aggregate have a Material Adverse Effect on the
Borrower arising in connection with (A) any non-compliance with
or violation of the requirements of any Environmental Law or (B)
the release or threatened release of any toxic or hazardous
waste, substance or constituent, or other substance into the
environment, or (ii) received notice or otherwise learned of any
federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of
any toxic or hazardous waste, substance or constituent into the
environment for which the Borrower is or may be liable which
would individually or in the aggregate have a Material Adverse
Effect on the Borrower.
SECTION 6.11 BUSINESS; COMPLIANCE. The Borrower has
performed and abided by all obligations required to be performed
by it to the extent it could be materially and adversely affected
under any license, permit, order, authorization, grant, contract,
agreement, or regulation to which it is a party or by which it or
any of its Property is bound.
SECTION 6.12 LICENSES, PERMITS, ETC. The Borrower possesses
such valid franchises, certificates of convenience and necessity,
operating rights, licenses, permits, consents, authorizations,
exemptions and orders of Tribunals as are necessary to carry on
its business as now being conducted and to own its Properties.
SECTION 6.13 COMPLIANCE WITH LAW. The business and
operations of the Borrower have been and are being conducted in
all material respects in accordance with all applicable laws,
rules and regulations of all Tribunals, other than violations
which could not (either individually or collectively) have a
Material Adverse Effect on the Borrower.
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SECTION 6.14 GOVERNMENTAL CONSENT. No consent, approval or
authorization of, or declaration or filing with, any governmental
authority is required for the valid execution, delivery and
performance of this Agreement or any other Loan Papers.
SECTION 6.15 INVESTMENT COMPANY ACT. The Borrower is not an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of
1940, as amended.
SECTION 6.16 PUBLIC UTILITY HOLDING COMPANY ACT; STATE
UTILITY. (a) The Borrower is not a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of
a "holding company," or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
(b) The Borrower is not classified as a "utility" under the
laws of any state wherein it does business.
SECTION 6.17 REFUNDS; CERTAIN CONTRACTS. (a) No orders of,
proceedings pending before, or other requirements of, the Federal
Energy Regulatory Commission, the Texas Railroad Commission, or
any Governmental Authority exist which could result in the
Borrower being required to refund any material portion of the
proceeds received or to be received from the sale of hydrocarbons
constituting part of the Collateral.
(b) Except as disclosed to the Lender by the Borrower in
writing, the Borrower (i) is not obligated in any material
respect by virtue of any prepayment made under any contract
containing a "take-or-pay" or "prepayment" provision or under any
similar agreement to deliver hydrocarbons produced from or
allocated to any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery, and
(ii) has not produced gas, in any material amount, subject to,
and neither the Borrower nor any of the Collateral is subject to,
balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for
which the Borrower has established monetary reserves adequate in
amount to satisfy such obligations and has segregated such
reserves from other accounts.
SECTION 6.18 NO DEFAULT. No Default has occurred which is
continuing as of the Closing Date.
SECTION 6.19 Y2K. The Borrower (i) has initiated a review
and assessment of material areas within its business and
operations (including those affected by key vendors and
customers) that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by
the Borrower (or key vendors and customers) may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), and
(ii) to date, the Borrower reasonably believes that all computer
applications of the Borrower that are material to its business
and operations are reasonably expected on a timely basis to be
able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a
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failure to do so could not reasonably be expected to have
material adverse effect on the business or operations of the
Borrower.
ARTICLE VII
COVENANTS
During the Revolving Credit Period, and thereafter so long
as any principal of or interest on the Note shall remain unpaid
or any Letter of Credit remains outstanding, the Borrower will
duly perform and observe each and all of the covenants and
agreements hereinafter set forth:
SECTION 7.1 USE OF PROCEEDS AND LETTERS OF CREDIT. (a) The
Borrower will use the proceeds of the initial Loan solely for the
purposes of acquiring a 12.25% working interest in the Righthand
Creek Field in Allen Parish, Louisiana, from Humphrey Oil
Interests, L.P. and, thereafter, Loans may be utilized for
general corporate purposes.
(b) Letters of Credit shall be used for the support of oil
and gas operations; provided, however, no Letter of credit may be
used in lieu or in support of stay or appeal bonds.
(c) The Borrower will not, directly or indirectly, use any
of the proceeds of the Loans for the purpose of purchasing or
carrying any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System (12 C. F. R.
221, as amended), or any "security that is publicly-held" within
the meaning of Regulation T of such Board of Governors (12 C.F.R.
220, as amended), or otherwise take or permit any action which
would involve a violation of such Regulation U, Regulation T or
Regulation X (12 C.F.R. 224, as amended) or any other regulation
of such Board of Governors. The Loans are not secured, directly
or indirectly, in whole or in part, by collateral that includes
any "margin stock" within the meaning of Regulation U. The
Borrower will not engage principally, or as one of its important
activities, in the business of extending credit for the purpose
of purchasing or carrying any "margin stock" within the meaning
of such Regulation U.
SECTION 7.2 FINANCIAL STATEMENTS; REPORTS; COMPLIANCE
CERTIFICATES; CERTAIN NOTICES. The Borrower will furnish to the
Lender:
(a) (i) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, the
annual report of the Borrower filed with the Commission on Form
10-K or if not so filed, then the financial statements ordinarily
required to be included in such annual report, in either case,
prepared by certified public accountants of recognized national
standing or otherwise acceptable to the Lender;
(ii) on or before the 60th day after the last day of
each of the first three fiscal quarters of each fiscal year of
the Borrower, a copy of the quarterly report of the Borrower
filed with the Commission on Form 10-Q for such quarter, or if
not so filed, then the financial statements ordinarily required
to be included in such quarterly report;
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(iii) simultaneously with the delivery of each set
of financial statements pursuant to the preceding clauses of this
Section, a Compliance Certificate of the Borrower stating that
such financial statements fairly and accurately reflect the
financial condition and results of operation of the Borrower for
the periods and as of the dates set forth therein, and that the
signers have reviewed the terms of this Agreement and the other
Loan Papers, and have made, or caused to be made under their
supervision, a review of the transactions and financial condition
of the Borrower during the fiscal period covered by such
financial statements, and that such review has not disclosed the
existence during such period, and that the signers do not have
knowledge of the existence as of the date of such certificate, of
any condition or event which constitutes a Default, or, if any
such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Borrower has
taken or is taking or proposes to take with respect thereto; and
(iv) within 15 days following the filing thereof,
copies of all documents filed with the Commission; and within 15
days of receipt thereof, any comment letters or similar
correspondence from the Commission; and
(b) (i) Within 45 days following each January 1 and July 1
during the term of this Agreement, production reports as of such
date containing such data information as the Lender may
reasonably request, but in any event, containing the prices at
which oil and gas from the Borrower's Properties were sold,
volumes of production sold from its Properties, gross revenues
and expenses related to such Properties. The production report
shall be accompanied by an Officer's Certificate from the
Borrower stating that such production report was prepared by the
signers or under their supervision and fairly and accurately
reflects the production, the joint interest billings and the
operating cash flow for the Collateral for the periods covered in
such report;
(ii) reports of oil, gas and liquids production volumes
for each month by major field and by total for all fields will be
due within 75 days following the end of such month.
(iii) The Borrower will provide to the Lender a
report setting forth all accounts receivable and accounts payable
within 30 days following the end of each calendar quarter, such
report to show the age of such accounts and such other
information as the Lender shall request as at the end of such
quarter.
(iv) The Borrower will provide a monthly report within
30 days following each month end, setting forth the Borrower's
hedging positions under any Hedging Agreements.
(c) (i) immediately after any Responsible Officer becomes
aware of the occurrence of any condition or event which
constitutes a Default, an Officer's Certificate of the Borrower
specifying the nature of such condition or event, the period of
existence thereof, what action the Borrower has taken or is
taking and proposes to take with respect thereto and the date, if
any, on which it is estimated the same will be remedied;
(ii) if and when the Borrower (A) gives or is required
to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan
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which might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event
given or required to be given to the PBGC; (B) receives notice of
complete or partial withdrawal liability under Title IV of ERISA,
a copy of such notice; or (C) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee
to administer any Plan, a copy of such notice;
(iii) promptly upon the Borrower's learning that it
has received notice or otherwise learned of any claim, demand,
action, event, condition, report or investigation indicating any
potential or actual liability which could reasonably be expected
to have a Material Adverse Effect arising in connection with (i)
the non-compliance with or violation of the requirements of any
Environmental Law, (ii) the release or threatened release of any
toxic or hazardous waste, substance or constituent into the
environment, or (iii) the existence of any Environmental Lien on
any Properties of the Borrower, notice thereof;
(iv) promptly upon the Borrower's learning of any
litigation or other event or circumstance which could have a
Material Adverse Effect on the Borrower, notice thereof;
(v) within 45 days after the end of each fiscal
quarter, the change in identity or address of any Person
remitting to the Borrower proceeds from the sale of hydrocarbon
production from or attributable to any Collateral during such
quarter;
(vi) any change in the senior management of the
Borrower; and
(vii) promptly upon the Borrower's discovery or
determining that any computer application (including those of its
suppliers, vendors and customers) that is material to its
business and operations will not be Year 2000 compliant, except
to the extent that such failure could not reasonably be expected
to have a material adverse effect on the business or operations
of the Borrower.
(d) with reasonable promptness, such other information
relating directly or indirectly to the financial condition,
business and/or Properties of the Borrower as from time to time
may reasonably be requested by the Lender.
SECTION 7.3 INSPECTION OF PROPERTIES AND BOOKS. The
Borrower will permit any officer, employee or agent of the Lender
to visit and inspect any of the Properties of the Borrower, to
examine its and their books of account (and to make copies
thereof and take extracts therefrom) and to discuss its and their
affairs, finances and accounts (including transactions,
agreements and other relations with any shareholders) with, and
to be advised as to the same by, its and their officers and
independent public accountants, all at such reasonable times and
intervals as the Lender may desire and, if a Default has occurred
and is continuing, at the expense of the Borrower.
SECTION 7.4 MAINTENANCE OF SECURITY; INSURANCE; OPERATING
ACCOUNTS; TRANSFER ORDERS. (a) The Borrower shall execute and
deliver, or cause the appropriate Person to execute and deliver,
to the Lender all mortgages, deeds of trust, security agreements,
financing
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statements, assignments and such other documents and instruments
(including division and transfer orders), and supplements and
amendments thereto, and take such other actions as the Lender
deems necessary or desirable in order to (i) maintain as valid,
enforceable, first-priority, perfected Liens (subject only to the
Permitted Liens), all Liens granted to the Lender to secure the
Note or (ii) monitor or control the proceeds therefrom.
(b) The Borrower will at all times maintain or cause to be
maintained insurance customary in the Borrower's business, but
not less than that currently in place.
(c) The Borrower will maintain its primary operating
accounts with the Lender, although such requirement shall not be
construed a requiring the Borrower to maintain deposit balances
with the Lender.
(d) The Borrower shall, upon request of the Lender, execute
such transfer orders, letters-in-lieu of transfer orders or
division orders as the Lender may from time to time request in
respect of the Collateral to effect a transfer and delivery to
the Lender of the proceeds of production attributable to the
Collateral.
SECTION 7.5 PAYMENT OF TAXES AND CLAIMS. The Borrower will
pay (a) all Taxes imposed upon it or any of its assets or with
respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (b)
all material claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have
become due and payable and which have or might become a Lien
(other than a Permitted Lien) on any of its assets; provided,
however, that no payment of such Taxes or claims shall be
required if (i) the amount, applicability or validity thereof is
currently being contested in good faith by appropriate action
promptly initiated and diligently conducted, (ii) the Borrower
shall have set aside on its books reserves (segregated to the
extent required by GAAP) reasonably deemed by it to be adequate
with respect thereto, and (iii) the Borrower has notified the
Lender of such circumstances, in detail satisfactory to the
Lender.
SECTION 7.6 PAYMENT OF DEBT; ADDITIONAL DEBT. (a)The
Borrower will (i) pay, renew or extend or cause to be paid,
renewed or extended the principal of, and the prepayment charge,
if any, and interest on all Debt heretofore or hereafter incurred
or assumed by it when and as the same shall become due and
payable; (ii) faithfully perform, observe and discharge all
unwaived covenants, conditions and obligations imposed on it by
any instrument evidencing such Debt or by any indenture or other
agreement securing such Debt or pursuant to which such Debt is
issued; and (iii) not permit the occurrence of any act or
omission which would constitute a default under any such
instrument, indenture or agreement.
(b) The Borrower will not create, incur or suffer to exist
any Debt, except without duplication (a) Debt to the Lender and
(b) Permitted Indebtedness.
SECTION 7.7 LIENS. The Borrower will not create, suffer to
exist or otherwise allow any Liens to be on or otherwise to
affect any of its Property whether now owned or hereafter
acquired, except Permitted Liens.
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SECTION 7.8 LOANS AND ADVANCES TO OTHERS; INVESTMENTS;
SUBSIDIARIES; RESTRICTED PAYMENTS. (a) The Borrower will not
directly or indirectly make or suffer to exist any loan, advance
or extension of credit to any Person except (i) current trade and
customer accounts receivable which are for goods furnished or
services rendered in the ordinary course of business and which
are payable in accordance with customary trade terms and (ii)
Permitted Loans and Investments.
(b) the Borrower will not make any capital contribution to
or acquire any Investment in, or purchase or make a commitment to
purchase any interest in, any Person except as set forth in
CLAUSE (a) above.
(c) The Borrower will not directly or indirectly make any
Restricted Payment, except that if no Default exists and the
making thereof will not cause a Default, the Borrower may pay
cash dividends on its common stock.
(d) The Borrower shall not form or acquire any
Subsidiaries.
SECTION 7.9 CONSOLIDATION, MERGER, MAINTENANCE, CHANGE OF
CONTROL; DISPOSITION OF PROPERTY; RESTRICTIVE AGREEMENTS; HEDGING
AGREEMENTS. (a) The Borrower will not (i) consolidate or merge
with or into any other Person (unless the Borrower is the
surviving entity and no Default has occurred and is continuing or
will result from such merger or consolidation) without the prior
written consent of the Lender, (ii) sell, lease or otherwise
transfer all or substantially all of its Property to any other
Person, (iii) terminate, or fail to maintain, its existence as a
partnership in the State of Texas or (iv) terminate, or fail to
maintain, its good standing and qualification to transact
business in all jurisdictions where the nature of its business
requires the same (except where the failure to maintain its good
standing or qualification could not reasonably be expected to
have a Material Adverse Effect).
(b) The Borrower will not sell, encumber, or otherwise
transfer all or any portion of the Collateral, any Property
having Collateral Value without the consent of the Lender, except
for (i) sales of oil and gas after severance in the ordinary
course of business provided that no contract for the sale of
hydrocarbons shall obligate the Borrower to deliver hydrocarbons
produced from any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery, (ii)
the sale or other disposition of its personal property destroyed,
worn out, damaged, or having only salvage value or no longer used
or useful in the business, or (iii) undeveloped leasehold acreage
not constituting Collateral. Any consent by the Lender to the
sale of Collateral or other Property of the Borrower may include
a requirement that a new Borrowing Base be determined and that
the proceeds of such sale plus such additional amounts as the
Lender deems necessary to avoid the occurrence of a Borrowing
Base Deficiency be applied to the Obligations. In this
connection, the Lender will not unreasonably withhold its consent
to sales during any 12-month period of Property, in the
aggregate, having Collateral Value of up to 10% of all Property
having Collateral Value.
(c) The Borrower will not be or become party to or bound by
any agreement (including, without limitation, any undertaking in
connection with the incurrence of Debt or issuance of securities)
which imposes any limitation on the disposition of the Collateral
more
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restrictive than those set forth above or which in any way would
be contravened by the Borrower's performance of its obligations
hereunder or under the other Loan Papers or which contains any
negative pledge on all or any portion of the Borrower's Property
(except in favor of the Lender).
(d) The Borrower will not enter into any Hedging Agreement,
other than Acceptable Hedging Agreements. At any time while a
Default exists, the Borrower agrees to apply all proceeds payable
to the Borrower under Hedging Agreements to the Lender for
application to the Note.
SECTION 7.10 PRIMARY BUSINESS; LOCATION OF BORROWER'S
Office; Ownership of Assets. (a) The primary business of the
Borrower shall be and remain the oil and gas exploration,
development and production business.
(b) The location of the Borrower's principal place of
business and executive offices shall remain at 3500 Oak Lawn,
Suite 590, Dallas, Texas 75219, unless at least 10 days prior to
any change in such address the Borrower provides the Lender with
written notice of such pending change.
(c) The Borrower will at all time own, both beneficially
and of record, all Collateral.
SECTION 7.11 OPERATION OF PROPERTIES AND EQUIPMENT; CHANGES
TO CERTAIN CONTRACTS; PAYMENT OF ACCOUNTS AND CONTRACT OPERATORS.
(a) The Borrower shall maintain, develop and operate its oil and
gas properties in a good and workmanlike manner and will observe
and comply with all of the terms and provisions, express or
implied, of all oil and gas leases relating to such properties so
long as such oil and gas leases are capable of producing
hydrocarbons in commercial quantities, to the extent that the
failure to so observe and comply could have a Material Adverse
Effect on the Borrower.
(b) The Borrower shall comply in all material respects with
all agreements applicable to or relating to its oil and gas
properties or the production and sale of hydrocarbons therefrom
and all applicable proration and conservation laws of the
jurisdictions in which such properties are located, to the extent
that the failure to so comply with such laws or agreements could
expose the Borrower to any material penalty or forfeiture.
(c) The Borrower shall at all times, maintain, preserve and
keep all operating equipment used or useful with respect to the
oil and gas properties of the Borrower in proper repair, working
order and condition, and make all necessary or appropriate
repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such operating equipment shall
at all times be properly preserved and maintained, provided that
no item of operating equipment need be so repaired, renewed,
replaced, added to or improved, if the Borrower shall in good
faith determine that such action is not necessary or desirable
for the continued efficient and profitable operation of the
business of the Borrower.
(d) With respect to the oil and gas properties referred to
in this Section which are operated by operators other than the
Borrower, the Borrower shall not be obligated itself to
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perform any undertakings contemplated by the covenants and
agreements contained in this Section which are performable only
by such operators and are beyond the control of the Borrower, but
the Borrower shall use its best efforts to cause such operators
to perform such undertakings.
(e) The Borrower will not amend, alter or change in any
material respect which could reasonably be expected to be adverse
to the interests of the Borrower or the Lender any agreements
relating to the Borrower's operations or business arrangements or
the compression, gathering, sale or transportation of oil and gas
without the prior written consent of the Lender, which consent
shall not be unreasonably withheld.
(f) If the Borrower is the operator of any Properties
constituting Collateral, royalty and overriding royalty owners
associated with each such Property shall be paid monthly within
30 days following receipt by the Borrower of proceeds of
production payable to such owners or, if the Borrower is unable
or prohibited by law from making such payments, the amount of
each such payment shall be set aside in a separate royalty
account at the Lender to be utilized for making such payment
subsequently as appropriate, and such funds shall not be
commingled with the Borrower's other funds.
(g) With respect to each Property constituting Collateral
for which a contract operator that has no ownership interest in
such Property, operates such Property, the Borrower shall pay
such contract operator its monthly fee within 30 days following
each such month end.
SECTION 7.12 TRANSACTIONS WITH AFFILIATES. The Borrower
will not engage in any transaction with an Affiliate unless such
transaction is at least as favorable to the Borrower as could be
obtained in an arm's length transaction with an unaffiliated
third party.
SECTION 7.13 PLANS. The Borrower will not assume or
otherwise become subject to an obligation to contribute to or
maintain any Plan or acquire any Person which has at any time had
an obligation to contribute to or maintain any Plan.
SECTION 7.14 COMPLIANCE WITH LAWS AND DOCUMENTS. The
Borrower will not, directly or indirectly, violate the provisions
of any laws, its organizational documents, or any of its Material
Agreements, if such violation, alone or when combined with all
other such violations, could have a Material Adverse Effect on
the Borrower.
SECTION 7.15 CERTAIN FINANCIAL COVENANTS.
(a) NET WORTH. The Borrower will not permit Tangible Net
Worth to be less at any time than (i) $1.00 (as this amount may
for future periods be adjusted upward as described following),
plus (ii) 50% of positive Net Income for all quarterly periods
ending subsequent to December 31, 1998, plus (iii) 100% of any
Equity Infusions occurring subsequent to December 31, 1998.
"NET INCOME" means, for any period, the
net income of the Borrower for such period,
determined in accordance with GAAP.
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<PAG>
"TANGIBLE NET WORTH" means, (a) total
assets, as would be reflected on a balance
sheet of the Borrower prepared in accordance
with GAAP, exclusive of Intellectual
Property, experimental or organization
expenses, franchises, licenses, permits, and
other Intangible assets, treasury stock,
unamortized underwriters' debt discount and
expenses, and goodwill minus (b) total
liabilities, as would be reflected on a
statement of assets and liabilities of the
Borrower prepared in accordance with GAAP.
(b) CURRENT RATIO. The Borrower will not permit the ratio
of the Current Assets of the Borrower to the Current Liabilities
of the Borrower ever to be less than 1.25 to 1.0.
"Current Assets" means, for any Person, the
current assets of the Borrower plus the unused portion
of the Revolving Commitment.
"Current Liabilities" means the current
liabilities of the Borrower, exclusive of that portion
of the Debt of the Borrower represented by the current
portions of the Note.
(c) CASH FLOW TO DEBT SERVICE RATIO. The Borrower will not
permit the ratio of Cash Flow to Debt Service for the Borrower,
to be less than 1.25 to 1.0, determined as of the end of each
fiscal quarter of the Borrower ending on or after September 30,
1999.
"Cash Flow" means, for any fiscal quarter of the
Borrower, the net income from operations of the
Borrower for such quarter plus depreciation,
amortization, depletion, and other non-cash expenses of
the Borrower for such quarter less gains on sales of
assets and other non-cash income for such quarter
included in the determination of net income from
operations of the Borrower. Cash Flow is a quarter-by-
quarter calculation.
"Debt Service" means with respect to any fiscal
quarter of the Borrower, the actual principal payments
on the Debt of the Borrower during such quarter other
than for the Note plus required principal payments on
the Note during such quarter.
SECTION 7.16 ADDITIONAL DOCUMENTS; QUANTITY OF DOCUMENTS;
TITLE DATA; ADDITIONAL INFORMATION. (a) The Borrower shall
execute and deliver or cause to be executed and delivered such
other and further instruments or documents as in the reasonable
judgment of the Lender may be required to better effectuate the
transactions contemplated herein and in the other Loan Papers.
(b) The Borrower will deliver all certificates, opinions,
reports and documents hereunder in such number of counterparts as
the Lender may reasonably request.
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(c) The Borrower shall cause to be delivered to the Lender
such title opinions regarding Property for which title opinions
have not been previously provided as the Lender may from time to
time reasonably request, in form and substance and from attorneys
acceptable to the Lender.
(d) The Borrower shall furnish to the Lender, promptly upon
the request of the Lender, such additional financial or other
information concerning the assets, liabilities, operations, and
transactions of the Borrower as the Lender may from time to time
request; and notify the Lender not less than ten Business Days
prior to the occurrence of any change in its name or the location
of its principal place of business or chief executive office; and
upon the request of the Lender, execute such additional Security
Instruments as may be necessary or appropriate in connection
therewith.
SECTION 7.17 ENVIRONMENTAL INDEMNIFICATION. THE BORROWER
SHALL INDEMNIFY, DEFEND AND HOLD THE LENDER AND ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-
IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE
LENDER UNDER ANY SECURITY INSTRUMENT (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") HARMLESS ON A CURRENT BASIS FROM AND
AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES,
PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND
ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND ENFORCEMENT
ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN
WHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS
SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE BORROWER,
WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY
CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER,
WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THE
BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER PERSON
AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION
WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION,
CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES
AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY
RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE BORROWER,
OR (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES
ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING,
STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES
BY THE BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR
SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER,
IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE
UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW,
INCLUDING ANY OF THE FOREGOING
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IN THIS SECTION ARISING FROM THE SOLE NEGLIGENCE, COMPARATIVE
NEGLIGENCE OR CONCURRENT NEGLIGENCE OF THE INDEMNIFIED PARTIES,
BUT NOT ANY OF THE FOREGOING IN THIS SECTION ARISING FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE
INDEMNIFIED PARTY SEEKING INDEMNIFICATION UNDER THIS SECTION;
WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
SECTION 7.18 EXCEPTIONS TO COVENANTS. Neither the Borrower
nor any other Person shall be deemed to be permitted to take any
action which is permitted by any of the covenants contained in
this Agreement if such action is in breach of any other covenant
contained in this Agreement.
ARTICLE VIII
DEFAULTS; REMEDIES
SECTION 8.1 EVENTS OF DEFAULT; ACCELERATION OF MATURITY. If
any one or more of the following events (each an "Event of
Default") shall have occurred and be continuing (whatever the
reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body or otherwise):
(a) the Borrower shall fail to pay, when due, any principal
of, or interest on, the Note or any fees or any other amount
payable hereunder;
(b) the Borrower shall fail to observe or perform any
covenant or agreement contained in SECTIONS 7.1, 7.6(b), 7.7, 7.8
or 7.9;
(c) the Borrower or any other Person (other than the
Lender) shall fail to observe or perform any covenant or
agreement contained in this Agreement or the other Loan Papers
(other than those covered by SECTIONS 8.1(a) or (b)), for a
period of thirty (30) days after the earlier of (i) any
Responsible Officer of the Borrower shall become aware or
reasonably should have become aware (regardless of the source of
such awareness) of such default or (ii) written notice specifying
such default has been given to the Borrower by the Lender;
(d) the Borrower shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate or other action to authorize any of the
foregoing;
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(e) an involuntary case or other proceeding shall be
commenced against the Borrower seeking liquidation,
reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed or unstayed for
a period of 30 days; or an order for relief shall be entered
against the Borrower under the federal bankruptcy laws as now or
hereafter in effect;
(f) the Borrower shall fail to pay, when due, any amount
which it shall have become liable to pay to the PBGC or to a Plan
under Title IV of ERISA; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any Plan or a proceeding shall be
instituted by a fiduciary of any Plan against the Borrower to
enforce Section 515 of ERISA; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan must be terminated;
(g) the Borrower (i) shall default in the payment of any of
its Material Debts (other than the Note) and such default shall
continue beyond any applicable cure period, (ii) shall default in
the performance or observance of any other provision contained in
any agreements or instruments evidencing or governing such
Material Debts and such default is not waived and continues
beyond any applicable cure period, or (iii) any other event or
condition occurs which results in the acceleration of such
Material Debts;
(h) one or more judgments or orders for the payment of
money aggregating in excess of $25,000 shall be rendered against
the Borrower and such judgment or order (i) shall continue
unsatisfied or unstayed (unless bonded with a supersedeas bond at
least equal to such judgment or order) for a period of 30 days,
or (ii) is not fully paid and satisfied at least ten (10) days
prior to the date on which any of its Property may be lawfully
sold to satisfy such judgment or order;
(i) any representation, warranty, certification or
statement made or deemed to have been made by or on behalf of the
Borrower in this Agreement or by the Borrower or any other Person
in any certificate, financial statement or other document
delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made if such incorrect
representation, warranty, certification or statement (i) could
reasonably be expected to have any material adverse effect upon
the validity, performance or enforceability of any Loan Paper,
(ii) could reasonably be expected to impair the Borrower's
ability to fulfill its obligations under the terms and conditions
of the Loan Papers, or (iii) could reasonably be expected to
impair the Lender's ability to receive full and timely payment of
the Note;
(j) if any default shall have occurred and be continuing
under any Security Document;
(k) any material license, franchise, permit, or
authorization issued to the Borrower by any Tribunal is
forfeited, revoked, or not renewed; or any proceeding with
respect to such forfeiture or revocation is instituted and is not
resolved or dismissed within one year of the date of the
publication of the order instituting such proceeding; or
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(l) a default shall occur, which shall remain uncured or
waived for ten (10) Business Days under any Material Agreement
pertaining to the ownership and operation of the Collateral,
other than this Agreement, to which the Borrower is a party or by
which any of its Property is bound;
then, and in every such event, the Lender may, at its option, (i)
declare the outstanding principal balance of and accrued interest
on the Note to be, and the same shall thereupon forthwith become,
due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of
any kind, all of which are hereby waived by the Borrower, (ii)
proceed to foreclose the Liens securing the Note, and (iii) take
such other actions as are permitted by law; provided that in the
case of any of the Events of Default specified in CLAUSES (d) or
(e) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Lender, the Revolving Commitment
shall terminate and the Note (together with accrued interest
thereon) shall become immediately due and payable without
presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other notice of any kind, all of which
are hereby waived by the Borrower. Upon the occurrence and
continuance of a Default, the Lender may terminate the commitment
to lend under this Agreement and the Revolving Commitment shall
thereupon terminate.
SECTION 8.2 SUITS FOR ENFORCEMENT. In case any one or more
of the Events of Default specified in Section 8.1 shall have
occurred and be continuing, the Lender may, at its option,
proceed to protect and enforce its rights either by suit in
equity or by action of law, or both, whether for the specific
performance of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this
Agreement.
SECTION 8.3 REMEDIES CUMULATIVE. No remedy herein conferred
upon the Lender is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or
otherwise.
SECTION 8.4 REMEDIES NOT WAIVED. No course of dealing and
no delay in exercising any rights under this Agreement or under
the other Loan Papers shall operate as a waiver of any rights
hereunder or thereunder of the Lender.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 AMENDMENTS AND WAIVERS. (a) Any term,
covenant, agreement or condition of this Agreement or any other
Loan Paper may be amended, or compliance therewith may be waived
(either generally or in a particular instance and either
retroactively or prospectively) by a written instrument signed by
the Borrower and the Lender.
(b) No failure or delay by the Lender in exercising any
right, power or privilege under this Agreement or any other Loan
Paper shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other
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right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or
remedies provided by law or in equity or in any of the other Loan
Papers.
SECTION 9.2 HIGHEST LAWFUL INTEREST RATE. Regardless of any
provision contained in any of the Loan Papers, the Lender shall
never be entitled to receive, collect, or apply as interest on
all or any part of the Loans, any amount in excess of the Highest
Lawful Rate in effect from day to day, and, in the event the
Lender ever receives, collects, or applies as interest any such
excess, such amount which would be deemed excessive interest
shall be deemed a partial prepayment of the principal of the
Loans and treated hereunder as such; and, if the entire principal
amount of the Loans owed to the Lender is paid in full, any
remaining excess shall be repaid to the Borrower. In determining
whether the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate in effect from day
to day, the Borrower and the Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any nonprincipal
payment as an expense, fee, or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and
(iii) amortize, prorate, allocate, and spread the total amount of
interest throughout the entire contemplated term of the Loans so
that the interest rate is uniform throughout the entire term of
the Loans; PROVIDED that, if the interest received by the Lender
for the actual period of existence thereof exceeds the Highest
Lawful Rate in effect from day to day, the Lender shall apply or
refund to the Borrower the amount of such excess as provided in
this Section, and, in such event, the Lender shall not be subject
to any penalties provided by any laws for contracting for,
charging, taking, reserving, or receiving interest in excess of
the Highest Lawful Rate in effect from day to day.
SECTION 9.3 INDEMNITY. (A) WHETHER OR NOT ANY LOANS ARE
EVER FUNDED OR ANY LETTER OF CREDIT IS EVER ISSUED HEREUNDER, THE
BORROWER AGREES TO INDEMNIFY AND DEFEND AND HOLD HARMLESS ON A
CURRENT BASIS THE LENDER AND ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED
PARTIES"), FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES,
DAMAGES, COSTS, INTEREST, CHARGES, COUNSEL FEES AND OTHER
EXPENSES AND PENALTIES OF ANY KIND WHICH ANY OF THE INDEMNIFIED
PARTIES MAY SUSTAIN OR INCUR IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING INITIATED BY
ANY PERSON OTHER THAN THE BORROWER (WHETHER OR NOT THE LENDER
SHALL BE DESIGNATED A PARTY THERETO) OR OTHERWISE BY REASON OF OR
ARISING OUT OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN PAPERS AND/OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH INDEMNIFIED
PARTY SHALL BE INDEMNIFIED UNDER THIS SECTION WITHOUT REGARD TO
THE CAUSE OR THE NEGLIGENCE OF ANY INDEMNIFIED PARTY, WHETHER
SUCH NEGLIGENCE BE THE SOLE NEGLIGENCE, COMPARATIVE NEGLIGENCE OR
CONCURRENT NEGLIGENCE OF ANY INDEMNIFIED PARTY.
(b) Any amount to be paid under this Section to the Lender
shall be a demand obligation owing by the Borrower and if not-
paid within ten days of demand shall bear interest
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from the date of expenditure by the Lender until paid at a per
annum rate equal to the lesser of (i) the Default Rate or (ii)
the Highest Lawful Rate. The obligations of the Borrower under
this Section shall survive payment of the Note and the assignment
of any right hereunder.
SECTION 9.4 EXPENSES. (a) Whether or not any one or more of
the Loans are ever funded, the Borrower shall pay (i) all out-of-
pocket expenses of the Lender, including, without limitation,
fees and disbursements of counsel for the Lender in connection
with the preparation of this Agreement and the other Loan Papers
(including, without limitation, the furnishing of any written or
oral opinions or advice incident to this transaction) and, if
appropriate, the recordation of the Loan Papers, any waiver or
consent hereunder or any amendment hereof or any Default
hereunder, and (ii) if an Event of Default occurs, all out-of-
pocket expenses incurred by the Lender, including, without
limitation, fees and disbursements of counsel in connection with
such Event of Default and collection and other enforcement
proceedings resulting therefrom, fees of auditors, consultants,
engineers and other Persons incurred in connection therewith
(including, without limitation, the supervision, maintenance or
disposition of the Collateral) and investigative expenses
incurred by the Lender in connection therewith, which amounts
shall be deemed compensatory in nature and liquidated as to
amount upon notice to the Borrower by the Lender and which
amounts shall include, but not be limited to (A) all court costs,
(B) reasonable attorneys' fees, (C) reasonable fees and expenses
of auditors and accountants incurred to protect the interests of
the Lender, (D) fees and expenses incurred in connection with the
participation by the Lender as a member of the creditors'
committee in a case commenced under any Insolvency Proceeding,
(E) fees and expenses incurred in connection with lifting the
automatic stay prescribed in 362 Title 11 of the United States
Code, and (F) fees and expenses incurred in connection with
any action pursuant to 1129 Title 11 of the United States Code
all reasonably incurred by the Lender in connection with the
collection of any sums due under the Loan Papers, together with
interest at the per annum interest rate equal to the Floating
Rate, calculated on a basis of a calendar year of 365 or 366
days, as the case may be, counting the actual number of days
elapsed, on each such amount from the date of notification that
the same was expended, advanced, or incurred by the Lender until
the date it is repaid to the Lender, with the obligations under
this Section surviving the non-assumption of this Agreement in a
case commenced under any Insolvency Proceeding and being binding
upon the Borrower and/or a trustee, receiver, custodian, or
liquidator of the Borrower appointed in any such case.
(b) THE BORROWER SHALL INDEMNIFY THE LENDER AGAINST ANY
TRANSFER TAXES, DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES MADE BY
ANY GOVERNMENTAL AUTHORITY BY REASON OF THE EXECUTION AND
DELIVERY OF THIS AGREEMENT OR THE OTHER LOAN PAPERS.
(c) Any amount to be paid under this Section to the Lender
shall be a demand obligation owing by the Borrower and if not
paid within ten days of demand shall bear interest from the date
of expenditure by the Lender until paid at a per annum rate equal
to the Default Rate. The obligations of the Borrower under this
Section shall survive payment of the Note and the assignment of
any right hereunder.
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SECTION 9.5 TAXES. The Borrower will, to the extent they
may lawfully do so, pay all Taxes (including interest and
penalties) but expressly excluding federal or state income taxes
which may be payable in respect of the execution and delivery of
this Agreement or the other Loan Papers, or in respect of any
amendment of or waiver under or with respect to the foregoing,
and will save the Lender harmless against any loss or liability
resulting from nonpayment or delay in payment of any such Taxes
(as limited above). The obligations of the Borrower under this
Section shall survive the payment of the Note and the assignment
of any right hereunder.
SECTION 9.6 NOTICES. Except as otherwise provided in
SECTION 2.2 with respect to requests for Loans or the issuance of
letters of credit, all notices, requests and other communications
to any party hereunder shall be in writing (including by telecopy
or similar writing) and shall be given to such party at its
address and to the attention of the Person set forth on the
signature pages hereof or such other address or telecopy number
or Person as such party may hereafter specify for such purpose by
notice to the other party. Each such notice, request or other
communication shall be effective (i) if given by telecopy, when
such telecopy is transmitted to the telecopier number specified
in this Section and the receipt thereof is acknowledged, (ii) if
given by mail, 72 hours after such communication is deposited in
the mails (certified, return receipt requested) addressed as
aforesaid or (iii) if given by any other means, when delivered at
the address specified in this Section, provided that notice to
the Lender under SECTION 2.2 shall not be effective until
received.
SECTION 9.7 RIGHT OF SET-OFFS. (a) Upon the occurrence and
during the continuance of any Event of Default, the Lender is
hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing
by the Lender to or for the credit or the account of the Borrower
against the obligations of the Borrower to the Lender,
irrespective of whether or not the Lender shall have made any
demand under this Agreement or any other Loan Paper and although
such obligations may be unmatured. The Lender agrees promptly to
notify the Borrower after any such set-off and application made
by the Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
The rights of the Lender under this Section are in addition to
other rights and remedies (including, without limitation, other
rights of set-off) which the Lender may have.
(b) The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a
participation in the Loans may exercise rights of set-off or
counterclaim and other rights with respect to such participation
as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.8 SURVIVAL. All representations, warranties and
covenants made by or on behalf of the Borrower in this Agreement
or the other Loan Papers herein or in any certificate or other
instrument delivered by it or in its behalf under the Loan Papers
shall be considered to have been relied upon by the Lender and
shall survive the delivery to the Lender of such Loan Papers or
the extension of the Loans (or any part thereof), regardless of
any investigation made by or on behalf of the Lender.
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SECTION 9.9 SUCCESSORS AND ASSIGNS: RIGHTS OF OTHER
HOLDERS. (A) This Agreement shall bind and inure to the benefit
of and be enforceable by the Lender, its legal representatives,
successors and assigns. With respect to the Borrower, this
Agreement and the other Loan Papers and the rights of the
Borrower hereunder and thereunder shall not be assignable in any
respect.
(b) The Lender may at any time sell, transfer, assign, or
grant participations in the Obligations or any portion thereof;
and the Lender may forward to each Transferee and prospective
Transferee all documents and information relating to such
Obligations, whether furnished by the Borrower or otherwise
obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of
any transfer to it, may exercise all rights (including, without
limitation, rights of set-off) with respect to the portion of the
Obligations held by it as fully as if such Transferee were the
direct holder thereof, subject to any agreements between such
Transferee and the transferor to such Transferee.
SECTION 9.10 APPLICABLE LAW; VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT HAS BEEN NEGOTIATED, IS BEING EXECUTED AND
DELIVERED, AND WILL BE PERFORMED IN WHOLE OR IN PART, IN THE
STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF SUCH STATE AND THE
APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THE LOAN PAPERS, EXCEPT TO THE EXTENT THE LAWS OF ANY
JURISDICTION WHERE COLLATERAL IS LOCATED REQUIRE APPLICATION OF
SUCH LAWS WITH RESPECT TO SUCH COLLATERAL.
(b) ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING
DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED,
AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS
HAVING SITUS IN DALLAS, DALLAS COUNTY, TEXAS. THE BORROWER
HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR
FEDERAL COURT LOCATED IN DALLAS, DALLAS COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE
JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE
LENDER IN ACCORDANCE WITH THIS SECTION.
(c) THE BORROWER AND THE LENDER HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF
THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF
THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING
INTO THIS AGREEMENT.
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SECTION 9.11 HEADINGS. The headings in this Agreement are
for purposes of reference only and shall not limit or otherwise
affect the meaning hereof and words such as "hereunder" or "
herein" shall refer to the entirety of this Agreement unless
specifically indicated otherwise.
SECTION 9.12 COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be an original
and all of which together shall constitute one and the same
instrument. This Agreement shall become effective at such time
as the counterparts hereof which, when taken together, bear the
signature of the Borrower and the Lender, shall be delivered to
the Lender.
SECTION 9.13 INVALID PROVISIONS, SEVERABILITY. If any
provision of this Agreement or the other Loan Papers is held to
be illegal, invalid, or unenforceable under present or future
laws effective during the term hereof or thereof, such provision
shall be fully severable, this Agreement and the other Loan
Papers shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part
thereof, and the remaining provisions hereof and thereof shall
remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as a
part of this Agreement or the other Loan Papers a provision as
similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 9.14 PRECLUSION OF ORAL AGREEMENTS. THIS WRITTEN
LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
GLADSTONE RESOURCES, INC.
3500 Oak Lawn, Suite 590
Dallas, Texas 75219
Telecopy: 214/528-9621
By: /s/ Johnathan M. Hill
------------------------------
Name: Johnathan M. Hill
Title: President
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LENDER:
COMPASS BANK
8080 N. Central Expressway
Suite 370
Dallas, Texas 75206
Attention: Energy Group
Telecopy: 214/706-8054
By: /s/ Terry O. McCarter
------------------------------
Name: Terry O. McCarter
Title: Senior Vice President
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FORM OF
PROMISSORY NOTE
$15,000,000 Dallas, Texas July 15, 1999
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned
("Maker") promises to pay to the order of COMPASS BANK ("Payee"),
at its banking quarters in Dallas, Dallas County, Texas, the sum
of FIFTEEN MILLION DOLLARS ($15,000,000), or so much thereof as
may be advanced against this Note pursuant to the Credit
Agreement dated of even date herewith by and between Maker and
Payee (as amended, restated, or supplemented from time to time,
the "Credit Agreement"), together with interest at the rates and
calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events
which will entitle the holder hereof to accelerate the maturity
of all amounts due hereunder. Capitalized terms used but not
defined in this Note shall have the meanings assigned to such
terms in the Credit Agreement.
This Note is issued pursuant to and shall be governed by the
Credit Agreement and the holder of the Note shall be entitled to
the benefits of the Credit Agreement. This Note shall finally
mature on the Revolving Credit Termination Date.
Without being limited thereto or thereby, this Note is
secured by the Security Instruments.
Maker, and each surety, endorser, guarantor, and other party
ever liable for payment of any sums of money payable on this
note, jointly and severally waive presentment and demand for
payment, protest, notice of protest and nonpayment, and notice of
the intention to accelerate, and agree that their liability on
this note shall not be affected by any renewal or extension in
the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this note, and
hereby consent to any and all renewals, extensions, indulgences,
releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF
THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT PURSUANT TO
SECTION 346.004 OF THE FINANCE CODE OF TEXAS, THE BORROWER AGREES
THAT CHAPTER 346 OF SUCH FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS)
SHALL NOT APPLY TO THIS NOTE.
GLADSTONE RESOURCES, INC.
By:
-------------------------
Printed Name: Johnathan M. Hill
Title: President